REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

Q uezon City

Third Division

iSCALE SOLUTIONS, INC., CTA CASE NO. 9845

Petitioner,

-versus- Members:
UY, Chairperson,
RINGPIS-LIBAN, and
MODESTO-SAN PEDRO,]]..

COMMISSIONER OF INTERNAL
REVENUE , REGIONAL DIRECTOR
GLEN A. GERALDINO & REVENUE
DISTRICT OFFICER MAHINARDO Promulgated:
G. MAILIG, .~'ITflr - · - - ~, .
Respondents. ~U.UI1 3 0-20lf/
x---------------------------------------------------------------------3-~1-~-r:~-~----x

DECISION

RINGPIS-LIBAN, J.

STATEMENT OF THE CASE

On June 4, 2018, petitioner iScale Solutions, Inc. flied a Petition for Review
praying that the Court:

1. Issue a Temporary Restraining Order against respondents from

issuing a Closure Order under Oplan Kandado against petitioner;

2. Grant the petition for Writ of Preliminary Prohibitory !'!Junction

enjoining respondents from issuing a Closure Order under Oplan
Kandado against petitioner;

3. Declare as null and void the issuance of the 48-Hour Notice and
Five (5)-Day VAT Compliance Notice; and

4. Nullify the VAT assessment sought to be collected from

petitioner under the Five (5)-Day VAT Compliance Notice.1._;
I

1 Statement of the Case, Pre-Trial O rder dated January 23, 2019, Docket - Vol. 1, p. 342.
Page 2 of22
DECISION
CTA CASE NO. 9845

THE PARTIES

Petitioner is a corporation duly organized and existing under the laws of

the Philippines, with principal business address at 7'h Floor, Salustiana D. Ty
Tower, 104 Paseo de Roxas, Makati City. 2 According to its General
Information Sheet submitted to the Bureau of Internal Revenue (BIR), the
primary purpose of petitioner is to engage in the business of creating,
designing, inventing and developing software and other computer applications,
and supplying, transferring, assigning, selling and/ or exporting to foreign
clients such software and other computer applications created, designed,
invented and developed by the corporation. 3

It is a registered taxpayer under Certificate of Registration No. OCN

9RC0000706339E dated October 12, 2016, with Taxpayer's Identification
Number (TIN) 008-106-923-00000. 4

Respondent Commissioner of Internal Revenue has the power to decide

disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, and other matter arising under the National
Internal Revenue Code (NIRC) or other laws or portions thereof administered
by the BIR. 5

Respondent Glen A. Geraldino is the Regional Director (RD) of

Revenue Region No. 8- Makati City, and respondent Mahinardo G. Mailig is
the Revenue District Officer (RDO) of Revenue District No. 47-East Makati,
both of whom may be served with copies of all pleadings, motions, orders,
notices and other court processes at BIR Building, 313 Sen. Gil J. Puyat
Avenue, Makati City. 6

THE FACTS OF THE CASE

A tax audit and investigation for taxable year 2016 against petitioner for
the year 2016 covering all internal revenue taxes was conducted by Revenue
Officer (RO) Melissa Baes and Group Supervisor (GS) Rebecca Pandapatan,
pursuant to Letter of Authority (LOA) SN: eLA201500049326 dated June 28,
2017. 7

During the conduct of tax audit and investigation against petitioner for
the year 2016 covering all internal revenue taxes, RO Baes and GS Pandapata;;v

2 Par. 8, Summary of Admitted l'acts, Joint Stipuhtion of Facts and Issues QSFI), Docket - Vol. 1, p. 236; Exhibit "P-6",
Docket~ Vol. 1, p. 29.
3 Par. 19, Summary of Admitted Facts, JSFI, Docket- VoL 1, p. 238.
4 Exhibit "P-7", Docket- Vol. 1, p. 474; Exhibit "P-15-G".
; Par. 9, Summary of Admitted Facts,JSFI, Docket- Vol. 1, p. 236.
6 Par. 10, Summary of Admitted Facts,JSFI, Docket- VoL 1, p. 236.
7 Pars. 1, 2, and 11, Summary of Admitted Facts,JSFI, Docket- VoL 1, pp. 234 to 236; Exhibit "P-8", Docket- Vol. 1, p.
475; Exhibit "R·I", Docket- Vol. 2, p. 567.
Page 3 of22
DECISION
CTA CASE NO. 9845

discovered that petitioner failed to issue official receipts. 8 With the regular tax
audit conducted against petitioner, however, only an unofficial Preliminary
5 ummary of Tax Deficiencies was issued against petitioner. 9 Furthermore, there
was no Mission Order issued for the conduct of Oplan K.andado against
petitioner. 10

On February 21, 2018, petitioner received a 48 Hour Notice dated

February 9, 2018 signed by respondent RD Geraldina, informing the former of
its alleged failure to comply with value-added tax (VAT) registration
requirements, by failing to issue sales invoices or receipts, and to reflect the
correct taxable sales/receipts for the period January 1, 2016 to December 31,
2016. 11 The said 48-Hour Notice further specifically informed petitioner that
closure of its business could result, pursuant to Section 115 of the 1997 Tax
Code, as implemented by Revenue Memorandum Order (RMO) No. 3-2009
dated January 15, 2009, otherwise known as Oplan K.andado. 12

Through its letter dated February 22, 2018, petitioner admitted its
violation of Sections 113 and 237 of the NIRC of 1997, as amended, and
informed the Bureau that it had corrected its VAT Returns to reflect the proper
discrepancy in revenue. 13 Attached to petitioner's letter and also submitted
therewith is a Schedule ofORs issuedfor 2016. 14

Petitioner's explanation, however, was rejected through the BIR's letter

dated March 12, 2018 signed by then RDO Florante R. Aninag, Revenue
District No. 47 - East Makati, pursuant to paragraph 3 of Section 6(A) of the
NIRC of 1997, as amended, in relation to Revenue Regulations (RR) No. 12-
99. The said letter further warned petitioner that failure to pay the deficiency
VAT would lead to the issuance of a Five (5)-Dqy VAT Compliance Notice
pursuant to the Oplan Kandado program. 15 However, the same letter did not
specify what amount of VAT was payable, nor how the amount was arrived
at.16

In reply to the said BIR letter, petitioner, via the letter dated March 19,
2018, explained that it misunderstood the 48 Hour Notice dated February 20,
2018, believing that the compliance with the notice would be the amendment
of its VAT Returns for the period which it had done s ?

B Par. 5, Summary of Admitted Facts,JSFI, Docket- Vol. 1, p. 235.

9 Pars. 4 and 22, Summary of Admitted Facts,JSFI, Docket- Vol. 1, pp. 235, and 239 to 240. respectively; Exhibit "P-9",
Docket- VoL 1, pp. 477 to 478; Exhibit "R-5", Docket- VoL 2, pp. 569 to 570.
IO Par. 21, Summary of Admitted Facts, JSFI, Docket- Vol. 1, p. 239.
11 Pars. 7 and 12, Summary of Admitted Facts,]SFI, Docket- Vol. 1, pp. 235 and 236 to 237, respectively; Exhibit "P-4",
Docket- Vol. 1, p. 471; Exhibit "R-8", Docket- Vol. 2, p. 574.
12 Par. 12, Summary of Admitted Facts, JSFI, Docket- Vol. 1, pp. 236 to 237.
13 Par. 13, Summary of Admitted Facts,JSFI, Docket- Vol. 1, p. 237; Exhibit "P-10", Docket- Vol. 1, p. 479; Exhibit "R-

9", Docket- Vol. 2, p. 575.

14 Par. 24, Summary of Admitted Facts,JSFI, Docket- Vol. 1, p. 242.

15 Par. 14, Summary of Admitted Facts,JSFI, Docket- Vol. 1, p. 237; Exhibit "P-11", Docket- Vol. 1, pp. 480 to 481;
Exhibit "R-10", Docket- Vol. 2, pp. 576 to 577.
16 Id

17 Par. 15, Summary of Admitted Facts,JSFI, Docket- Vol. 1, p. 237; Exhibit "P-12", Docket- Vol. 1, p. 482.
Page 4 of22
DECISION
CTA CASE NO. 9845

Nonetheless, the BIR's response thereto came in the form of the Five (5)-
Dqy VAT Compliance Notice dated March 18, 2018, which was received by
petitioner on April 2, 2018. 18

Through its letter dated April 5, 2018 addressed to respondent RD

Geraldina, as Chairman of the Review Board under Oplan K.andado, petitioner,
through counsel, submitted photocopies of the official receipts issued to its
non-resident clients in compliance with the BIR letter dated March 12, 2018. 19
Petitioner also set forth its argument, contesting what it presumed to be the
deficiency VAT assessment, arguing, in gist, that the non-issuance of official
receipts on payments received from VAT zero-rated transactions, does not
result in the treatment of such sales as VAT-taxable. 20

The BIR replied through its letter dated April 18, 2018 signed by
respondent RDO Mailig which was received by petitioner on May 3, 2018. The
said letter, in gist, denied the arguments presented in petitioner's letter dated
April 5, 2018, reiterating the demand to pay the deficiency VAT, and warning
with the issuance of a Closure Order. 21 Still, no detail was ever shown as to
how the said deficiency arose or computed. 22

Parenthetically, as of the time of filing of the instant Petition for Review,

the BIR has yet to issue a formal and final demand for the payment of tax
deficiency for the year 2016 covering all internal revenue taxes. 23

On June 4, 2018, petitioner flied this Petition for Review with Petition for Writ
of Preliminary Prohibitory If!iunction. 24 This case was originally raffled to the
Court's First Division.

Thereafter, the Court set and held a hearing for the Petition for Writ of
Preliminary Prohibitory Injunction on June 21, 2018, which was treated as a Motion
for Suspension of Collection ofTaxes. 25 At the said hearing, petitioner: (1) presented
Ms. Lunar Rosario,26 petitioner's Financial Controller, and (2) Mr. Ibarra F.
Miranda/7 Paralegal of CMB/P Law, in support of the said Motion; and
formally offered Exhibits "P-1" and "P-2", to which respondents did n~

18 Pars. 7 and 16, Summary of Admitted Facts,JSFI, Docket- VoL 1, pp. 235 and 237, respectively; Exhibit "P-5", Docket
-Vol. 1, p. 472.
19 Par. 17, Summary of Admitted Facts,JSFI, Docket- VoL 1, p. 238; Exhibit "P-13", Docket- Vol 1, pp. 483 to 484;

Exhibit "R-13", Docket- Vol. 2, pp. 581 to 582.

zo Id
21 Pars. 6 and 18, Summary of Admitted Facts,JSFI, Docket- VoL 1, pp. 235 and 238, respectively; Exhibit "P-3", Docket

- Vol. 1, pp. 469 to 470; Exhibit "R-14", Docket - Vol. 2, pp. 583 to 584.
zz Id
23 Par. 3, Summary of Admitted Facts,JSFI, Docket- Vol. 1, p. 235.
24 Docket- Vol. 1, pp. 10 to 24.
25 Notice of Hearing dated June 19, 2018, Docket- Vol. 1, p. 52; Minutes of the hearing held on, and Order dated, June 21,

2018, Docket- Vol. 1, pp. 54 to 59.

26 Exhibit "P-1", Docket- Vol. 1, pp. 43 to 47; J\.finutes of the hearing held on, and Order dated, June 21,2018, Docket-

Vol. 1, pp. 54 to 59.

27 Exhibit "P-2", Docket- Vol. 1, pp. 48 to 51; Minutes of the hearing held on, and Order dated, June 21, 2018, Docket-
Vol. 1, pp. 54 to 59.
Page 5 of ZZ
DECISION
CTA CASE NO. 9845

interpose any objection thereto. In the same hearing, the Court admitted the
said Exhibits.

Respondent's Comment/Opposition to the Petition for the Issuance of Writ of

Preliminary Injunction was posted on June 26, 2018/8 while petitioner's Rtp!J to
Opposition to the Petition for the Issuance of Writ of Preliminary Injunction was filed on
July 6, 2018. 29

On July 10,2018,30 respondent filed his Answer.

In the Resolution dated August 6, 2018, 31 petitioner's Petition for Writ of

Preliminary Prohibitory Injunction, which was treated as a Motion for Suspension of
Collection of Taxes, was granted, subject to the posting of the required cash or
surety bond.

On August 20, 2018, petitioner subsequendy flled its Omnibus Motion for:
1) Extension of Time to Comp!J with the Submission of a Surety Bond 2) Reduction of the
Amount to be Co[n]vered by a Bond. 32 Thereafter, on September 10, 2018,
petitioner also filed its Motion for Additional Extension of Time to Comp!J with the
Submission of Surety Bond,33 which the Court granted in the interest of justice, via
the Order dated September 17, 2018. 34

Respondent flied his Manifestation as regards petitioner's motion for

extension/ 5 but did not comment on the motion for reduction of the amount
to be conveyed by a bond. 36

Pursuant to the Court's Order dated September 27, 2018, the instant
case was transferred to this Court's Third Division. 37

The pre-trial conference of this case was set and held on October 16,
38
2018. Prior thereto, Petitioner's Pre-Trial Bn'ej was submitted on October 3,
39
2018; while Respondent's Pre-Trial Brief was flied on October 12,2018. 40

The BIR Records were submitted on October 19, 2018~

28 Docket- Vol. 1, pp. 61 to 65.
29Docket-Vol.1,pp. 72to77.
30Docket- Vol.l,pp. 96 to 106.
3t Resolution dated August 6, 2018, Docket - Vol. 1, pp. 109 to 117.
32Docket- VoL 1,pp.120to 123.
33 Docket- Vol. 1, pp. 126 to 128.
34Docket- VoL 1,p.131.
35 Docket- Vol. 1, pp. 132 to 134.
36 Refer to Records Verification Report dated October 9, 2018 issued by the Judicial Records Division of this Court,
Docket- Vol. 1, p. 204.
37 Order dated September 27,2018, Docket- VoL 1, pp. 135.
38 Resolution dated August 9, 2018, Docket- Vol. 1, p. 119; Minutes of the hearing held on, and Order dated, October 16,
2018, Docket- Vol. 1, pp. 219, and 221 to 223, respectively.
39 Docket- VoL 1, pp. 140 to 152.
40 Docket- VoL 1, pp. 208 to 218.

41 Compliance dated October 19,2018, Docket- VoL 1, pp. 224 to 225.

Page 6 of22
DECISION
CTA CASE NO. 9845

Subsequendy, the parties submitted their Joint Stipulation of Facts and Issues
(fSFI) on November 15, 2018. 42 The said JSFI was admitted and approved by
the Court in the Resolution dated December 6, 2018,43 deeming the
termination of the Pre-Trial. Subsequendy, the Court issued the Pre-Trial
Order dated January 23, 2019. 44

In the Resolution dated January 24, 2019, 45 the Court, inter alia, (1) set
the preliminary hearing to determine whether the posting of a cash bond or
surety bond provided under Section 11 of Republic Act (RA) No. 1125, as
amended by RA Nos. 9282 and 9503, can be reduced to restrain the collection
of deficiency VAT against petitioner; and (2) held in abeyance the resolution of
petitioner's Motion for Reduction of the Amount to be Covered by a Bond.

In support of its Motion for Reduction, petitioner presented Mr. Edward C.

Santos, petitioner's External Auditor. 46 Respondent's counsel manifested that
he would no longer file a comment/opposition to the said motion. 47

In the Resolution dated May 14, 2019,48 petitioner's Motion for Reduction of
the Amount to be Covered by a Bond was denied by the Court for lack of merit.

Anent the main case, petitioner also presented its documentary and
testimonial evidence. Relative thereto, petitioner offered the testimonies of the
following individuals, namely: (1) Mr. Lunar Rosario, 49 petitioner's Financial
Controller; (2) Mr. Neil U. Sison, 50 the Court's duly commissioned Independent
Certified Public Accountant (ICPA); 51 and (3) Mr. Efren Lumapag, Jr., 52
Business Manager of the Bank of the Philippine Islands.

In the interim, the Court received the Report of the ICPA on March 14,
53
2019.

Petitioner's Formal Offer of Evidence was filed on August 29, 2019. 54

Respondent posted his Comment (to Petitioner's Formal Offer of Evidence dated Augus;,v

42 Docket- VoL 1, pp. 234 to 255.

43 Docket- Vol. 1, p. 284.
44 Docket- Vol. 1, pp. 342 to 353.
45 Resolution dated January 24, 2019, Docket- Vol. 1, pp. 355 to 360.
46 Judidal Affidavit of Edward C. Santos, Docket - Vol. 1, pp. 367 to 370; I\1.inutcs of the hearing held on, and Order dated,

March 12,2019, Docket- Vol. 1, pp. 393 to 395.

47 Minutes of the hearing held on, and Order dated, March 12, 2019, Docket- Vol. 1, pp. 393 to 395.
4B Docket- Vol. l,pp. 435 to440.
49 Exhibit "P-17'', Docket- Vol. 1, pp. 515 to 526; Minutes of the hearing held on, and Order dated, March 12, 2019,

Docket- Vol. I, pp. 393 to 395.

50 Exhibit "P-19", Docket- VoL 1, pp. 536 to 545; Minutes of the hearing held on, and Order dated, May 14,2019, Docket
-Vol. 1, pp. 441 to 443; Minutes of the hearing held on, and Order dated, July 30,2019, Docket- Vol. 1, pp. 444 to 446.
51 Oath oJCommis.rion dated February 12, 2019, Docket- Vol. 1, p. 362; Minutes of the hearing held on, and Order dated,
February 12, 2019, Docket- Vol. 1, pp. 361, and 363 to 364, respectively.
52 Exhibit "P-18", Docket- Vol. ·1, pp. 527 to 531; Minutes of the hearing held on, and Order dated, July 30, 2019, Docket
-Vol. 1, pp. 444 to 446.
53 Docket- VoL 1, pp. 396 to 404.
:.4 Docket- Vol. 1, pp. 450 to 459.
Page 7 of22
DECISION
CTA CASE NO. 9845

27, 2019 received ry Respondent on August 28, 2019) on September 12, 2019. 55 In
the Resolution dated October 9, 2019, 56 petitioner's Exhibits were admitted.

For his part, respondent likewise presented his documentary and

testimonial evidence. He proffered the testimony of Ms. Melissa S. Baes,57 a
Revenue Officer of the BIR.

Respondent's Formal Offer of Evidence (With Attached Respondent's Documentary

Exhibits) was filed on December 5, 2019. 58 Petitioner submitted its
Comment/Opposition to Respondent's Formal Offer of Evidence on December 13,
2019. 59 In the Resolution dated March 3, 2020,60 respondent's Exhibits were
admitted, except for the following:

1) Exhibits "R-2-A", "R-3", and "R-4", for not being found in the
records; and
2) Exhibits "R-12" and "R-12-A" for failure of the same to correspond
with the documents actually marked.

The Memorandum for Respondent was posted on July 1, 2020,61 while

Memorandum for Petitioner was filed on July 10, 2020. 62

On July 16,2020, this case was deemed submitted for decision. 63

THE ISSUES RAISED BY THE PARTIES

The parties stipulated the following issues for this Court's resolution, to
wit:

"1. Whether or not the conduct of Oplan Kandado against

Petitioner is procedurally correct.

2. Whether or not Petitioner is liable to pay the VAT deficiency.

3. Whether or not this Honorable Court has jurisdiction over the

instant petition."64 .
;"V

ss Docket- Vol. 2, pp. 549 to 550.

56 Docket- Vol. 2, pp. 555 to 556.
57 Exhibit "R-16", Docket- Vol. 1, pp. 259 to 281; Minutes of the hearing held on, and Order dated, November 26,2019,
Docket- VoL 2, pp. 557 and 558 to 558-A.
58 Docket- Vol. 2, pp. 559 to 566.
59 Docket- Vol. 2, pp. 591 to 594.
60 Docket- Vol. 2, pp. 599 to 601.
61 Docket- Vol. 2, pp. 608 to 628.
62 Docket- VoL 2, pp. 631 to 649.
6l Resolution dated July 16, 2020, Docket- Vol. 2, p. 654.
64 Stipulation of lssucs,JSFI, Docket- Vol. 1, p. 243.
Page 8 of22
DECISION
CTA CASE NO. 9845

Petitioner's arguments:

Petitioner argues that the conduct of Oplan Kandado against it is

procedurally infirmed and the issuance of the 48-Hour Notice and Five (5)-Dqy
VAT Compliance Notice are null and void; that petitioner is not liable for
deficiency VAT, for failure to issue official receipts and invoices on its zero-
rated transactions; that respondents have not been able to adduce evidence in
support of its computation of deficiency VAT, and thus, any assessment
thereon has no basis; and that this Court has exclusive appellate jurisdiction to
review the decision of respondent in cases involving disputed assessments, as
well as other matters arising under the Tax Code.

Respondents' counter-arguments:

Respondents aver that this Court has no jurisdiction over this case for
lack of cause of action; that petitioner failed to exhaust administrative remedy;
that the recommendation for Oplan Kandado has factual and legal bases; that the
48-Hour Notice and Five (5)-Dqy VAT Compliance Notice are valid; that covert
surveillance is not necessary in this case; and that petitioner is liable for
deficiency VAT for failure to issue official receipts and invoices.

THE RULING OF THE COURT

The instant Petition for Review is meritorious.

This Court has jurisdiction to

entertain the present appeal.

The jurisdiction of this Court is not limited to cases involving decisions

or inactions of the CIR on disputed assessments but also decisions or inactions
over "other matters arising under the Tax Code, as amended." Section 7(a)(1)
of Republic Act (RA) No. 1125,65 as amended by RA No. 9282,66 provides as
follows:

"SEC. 7. Jurisdiction.- The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as

herein provided/

''AN ACT CREATING THE COURT OF TAX APPEALS.

"AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA), ELEVATING ITS
RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL JURISDICTION AND ENLARGING
ITS MEMBERSHIP, AMENDING FOR THE PURPOSE CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125,
AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX APPEALS, AND
FOR OTHER PURPOSES.
Page 9 ofZZ
DECISION
CTA CASE NO. 9845

(1) Decisions of the Commissioner of Internal

Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of
Internal Revenue;" (Emphases and underscoring supplied)

In Philippine Journalists, Inc. vs. Commissioner rj Internal Revenue,67 the

Supreme Court held as follows, to wit:

"The appellate jurisdiction of the CTA is not limited to

cases which involve decisions of the Commissioner of
Internal Revenue on matters relating to assessments or
refunds. The second part of the provision covers other cases
that arise out of the NIRC or related laws administered by
the Bureau of Internal Revenue. The wording of the
provision is clear and simple. It gives the CTA the jurisdiction
to determine if the warrant of distraint and levy issued by the BIR
is valid and to rule if the Waiver of Statute of Limitations was
validly effected.

This is not the first case where the CTA validly ruled on
issues that did not relate direcdy to a disputed assessment or a
claim for refund. In Pantqja v. David,68 we upheld the jurisdiction
of the CTA to act on a petition to invalidate and annul the
distraint orders of the Commissioner of Internal Revenue. Also,
in Commissioner rj Internal Revenue v. Court rj Appeals,69 the decision
of the CTA declaring several waivers executed by the taxpayer as
null and void, thus invalidating the assessments issued by the BIR,
was upheld by this Court." (Emphasis supplied)

Based on the foregoing proVlston and jurisprudence, this Court has

jurisdiction over the decisions of respondent in cases, not only those ''involving
disputed assessments, and refunds rj internal revenue taxes, fees or other char;ges, penalties in
relation thereto", but also regarding "other matters arising under the National Internal
Revenue Code or other laws administered l?J the Bureau of Internal Revenue."

In this case, it is apparent that the issuance of the subject 48-Hour Notice
and 5-dC!J VAT Compliance Notice, arose out of respondents' implementation of
Sections 113, 237, and 114 of the NIRC of 1997, as amended. As such, this
Court has jurisdiction over the said issuances.
;"/

67 G.R. No. 162852, December 16,2004.

"111 Phil.197 (1961).
"G.R. No. 115712, February 25, 1999.
Page 10 of22
DECISION
CTA CASE NO. 9845

Respondent Commissioner claims that this Court has no jurisdiction

over the case because there is no Closure Order yet that can be the subject of
review by this Court; that the the BIR Letter dated April 18, 2018 is not the
respondent's final decision on petitioner's Letter dated April 5, 2018 since the
respondent is still open to the possibility of the case being elevated to the
Office of the Regional Director for review of the said BIR Letter.

A reading of RMO No. 3-2009,70 however, does not provide any

remedies of appeal to the CIR should the response of the Regional Director be
adverse to the taxpayer. The next step would be the issuance of a Closure
Order.

To quote the pertinent provisions of RMO No. 3-2009 vi{

"V. GUIDELINES AND PROCEDURES

A. Surveillance Activities
XXX XXX XXX

B. Suspension or Temporary Closure of Business

XXX XXX XXX

3. Confrontational Requirements
3.1. Consistent with the requirements of due
process, the report of the handling Revenue Officer shall
be concurred in by the Head of the investigating office.
The findings of the investigating office shall be reviewed by
a Review Board composed of the following:

3.1.1 For fugional Cases. - The Regional &view Board

shaJJ be composed of the following revenue o.fficials:

Chairman : Regional Director

Members : Chief, Assessment Division
Chief, Legal Division
RDO havingjurisdiction over the taxp'!)'er
XXX XXX XXX

The Review Boards must act on reports within five (5) days
from receipt thereof. The Review Board shall convene,
upon the initiative of the chairperson, whenever necessary.

If a report is approved by a Review Board, the concerned

Regional Director or the ACIR, Enforcement Service/LT,
as the case may be, shall in his capacity as Chair of th~

70Amendment and Consolidation of the Guidelines in the Conduct of Surveillance and Stock-Taking Activities, and the
Implementation of the Administrative Sanction of Suspension and Temporary Closure of Business.
Page 11 of 22
DECISION
CTA CASE NO. 9845

Review Board, sign and issue to the taxpayer

concemed a Forty-Eight (48) Hour Notice, requiring
him to explain under oath within forty eight (48) hours
why he should not be dealt with administratively, by
suspension of business or temporary closure of his
establishment, and/or criminally, for violation of
pertinent provisions of the Tax Code.
XXX XXX XXX

3.3 If a Review Board deems it necessary pursuant to

administrative or criminal action against a non-
compliant taxpayer, it shall cause the preparation of a
5-Day VAT Compliance Notice (VCN) [Annex "D''j,
which shall be issued in lieu of the 10-Day VCN, to
expedite the resolution of the case at hand. The 5-day
VCN shall be signed by the Chair of the Review Board
concerned.

3.3.1. The 5-Day VCN, with details ofthe

findings ofthe investigating office as
approved by the Review Board, shall be
served immediately to the taxpayer by the
Regional Director/ ACIR-LTS/ ACIR-
Enforcement Service, as the case may be.

3.3.2 The 5-Day VCN shall likewise state the

particular provision(s) ofthe NIRC that
was/were violated by the taxpayer, for
which rectification must be done,
including payment of the required
deficiency taxes and penalties due
therefor.

3.3.3 The taxpayer may again refute the findings

ofthe BIR within two (2) days from
receipt ofthe VCN, and submit his
response to the Review Board.

3.3.4 The Review Board shall, in tum

immediately transmit the taxpayer's
response to the Investigating Office
concemed, for evaluation.

3.3.5 The Investigating Office concemed shall,

within three (3) days from receipt thereof,
evaluate, a taxpayer's response to a 5-Day VCN,
and prepare the corresponding response thereto.
The response letter shall then be signed by the
Chair of the Review Board/
Page 12 of22
DECISION
CTA CASE NO. 9845

3.3.6 Upon receipt by the BIR ofthe protest, the

running of the five (5)- day compliance period is
deemed suspended, and shall resume only upon
receipt by the taxpayer ofthe BIR's resolution
on the protest.

C. Enforcement and Execution

1. In the event that a taxpayer-

• Refuses, neglects or fails to submit within the

prescribed period, a response letter to a
VCN;
• Submitted a response that was later found to
be insufJicient; or
• RefUses, neglects or fails to comply with the
terms ofthe 5-Day VCN,

The Review Board concemed shall prepare a

memorandum report recommending the closure of the
establishment, for the approval of the Commissioner.
Said report shall include the proposed Closure Order
(Annex "E''), supported by the necessary
documentation, for the approval and signature of the
Commissioner.

The Closure Order shaD be prepared in

quintuplicate {five[5] copies), to be distributed as
follows:
XXX XXX XXX

2. The signed Closure Order shall be retumed

by the OfJice of the Commissioner, together wiD
aU supporting documents, to the Review Board
concemed, for immediate service to the non-
compliant taxpayer.

3. The service ofthe Closure Order shall be

accompanied by a copy of the memorandum
report ofthe Review Board concemed, duly
approved by the Commissioner, indicating
therein the basis for the Closure."

The BIR Letter dated April 18, 2018 is unequivocal. The failure of the
taxpayer to pay will lead to the issuance of a Closure Order. To quote the lett~
'
Page 13 of 22
DECISION
CTA CASE NO. 9845

"xxx XXX XXX

Applying the foregoing provtstons of the law and the

corresponding court rulings in your case, we are unfortunately
precluded from accepting and/ or recognizing your dispute. Please
be further informed that failure on your part to pay the deficiency
Value Added Tax will lead us to the recommendation of the
issuance of the CLOSURE ORDER, pursuant to Section 115 of
the National Internal Revenue Code, as implemented by Revenue
Memorandum Order No. 3-2009 dated January 15, 2009,
otherwise known as "OPLAN KANDADO".

Petitioner should not have to wait for the issuance of a Closure Order
before elevating the case to this Court. As previously stated, since the "Oplan
Kandado" is an implementation of Sections 113, 237 and 114 of the NIRC of
1997, as amended, this Court has jurisdiction over the same.

Anent the timeliness of the Petition, a taxpayer adversely affected by a

decision or inaction of the CIR should appeal to this Court within thirty (30)
days from receipt of the decision or after the expiration fixed by law for action
as referred to in Section 7(a)(1) of the Tax Code, as amended. 71 Notably, RMO
No. 3-09 requires the Review Board to immediately transmit the taxpayer's
response to the 5-Day VCN to the Investigating Office concerned and said
office shall, within three (3) days from receipt thereof, evaluate the taxpayer's
response and prepare the response letter to be signed by the Chair of the
Review Board. 72 RMO No. 3-09 further provides that upon receipt by the BIR
of the protest, the running of the five (5)-day compliance period is deemed
suspended and shall resume only upon receipt by the taxpayer of the BIR's
resolution on the protest. An RMO, as it has the force and effect of law, has
been equated by jurisprudence with laws in general and tax laws in particular. 73
Thus, the period fixed in RMO No. 3-09 has the force and effect of law.

In this case, petitioner ftled a Protest Letter to respondent on April 5,

2018, in response to the 5-Day VCN received on April 2, 2018. The BIR's
Reply Letter dated April 8, 2018 was received by petitioner on May 3, 2018.
The present Petition was ftled on June 4, 2018/4 thus, the Petition for Review
was ftled on time.

The issuance of the subject 48-Hour

Notice and 5-Day VAT Compliance
Notice violated petitioner's
constitutional right to due process/

71 Republic Act No. 1125, as amended.

72 RNO No. 3-09 dated 15 January 2009.
73 Nanox Philippines, Inc. v. CIR, CTA EB Case No. 1629 (CTA Case No. 8433), 15 April2019, citing GR v. Ariete, G.R. No.
164152,21 January 2010.
74 The last day to file the Petition for Review was on June 3, 2018, a Sunday.
Page 14 of22
DECISION
CTA CASE NO. 9845

It is an elementary rule enshrined in the 1987 Constitution that no

person shall be deprived of property without due process of law. In balancing
the scales between the power of the State to tax and its inherent right to
prosecute perceived transgressors of the law on one side, and the constitutional
rights of a citizen to due process of law and the equal protection of the laws on
the other, the scales must tilt in favor of the individual. for a citizen's right is
amply protected by the Bill of Rights under the Constitution. 75 Thus, while
taxes are the lifeblood of the government, the power to tax has its limits, in
spite of all its plenitude. Even as We concede the inevitability and
indispensability of taxation, it is a requirement in all democratic regimes that it
be exercised reasonably and in accordance with the prescribed procedure. 76

The BIR's power to collect taxes must yield to the fundamental rule that
no person shall be deprived of his/her property without due process of law.
The rule is that taxes must be collected reasonably and in accordance
with the prescribed procedure. 77

In this case, however, respondents failed to observe the prescribed

procedure in the issuance of the subject 48-Hour Notice and 5-dt!J VAT
Compliance Notice. Respondents did not fully comply with the procedure
prescribed under ruviO No. 3-2009 in the issuance of the said notices.

This Court cannot subscribe to respondent Commissioner's contention

that "RMO No. 3-2009 is a mere guideline and directory in nature." This must be so
because administrative issuances, such as the said ruviO, have the force and
effect of law; and that they benefit from the same presumption of validity and
constitutionality enjoyed by statutes. 78 Thus, any provision in any
administrative issuance must be accorded with the same level as any statute, so
long as they are not contrary to the laws or the Constitution. 79 Pertinently,
since there is no showing that ruviO No. 3-2009 is contrary to law or the
Constitution, the same must be given legal effect.

The prerequisite conduct and conclusion of surveillance by certain BIR

personnel before the issuance of the Notices is axiomatic under the following
pertinent provisions ofruviO No. 3-2009, to wit:

"V. GUIDELINES AND PROCEDURES

A. Surveillance Activities

XXX XXX XXX/

75 Commis!ioner of Internal &venue vs. BASF Coating + Inks Phils., Inc., G.R. No. 198677, November 26, 2014.
76 Commissioner of Internal Revenue vs. United Salvage and Towage (Phils.), Inc., G.R. No. 197515,July 2, 2014.
77 Commissioner of Internal Revenue vs. Pilipinas S heU Petroleum Corporation, etseq., G.R. Nos. 197945 and 204119-20, July 9, 2018.
78 Chevron Philippines, Inc. vs. Bases Conversion and Development Authority, ef al, G.R. No. 173863, September 15, 2010.
79 Article 7, Civil Code of the Philippines (Republic Act No. 386).
Page 15 of22
DECISION
CTA CASE NO. 9845

2. Conduct of Surveillance

2.1. Revenue Officer Authorized to Conduct

Surveillance Activities on Business
establishments for Possible Violations of
Sections 113, 114, 236, 237 and 238 of the
NIRC, as amended. - At least two (2)
implementing officers comprised of
Revenue Officers (ROs)
(Assessment/Excise), Intelligence Officers
(lOs) and special Investigators (Sis)
assigned in the following investigating
offices/ divisions shall be authorized to
conduct surveillance activities on identified
business establishment based on validly
issued mission order signed by the
concerned authorized revenue official:

XXX XXX XXX

2.2. Mandatory Requirement for the Conduct of
Surveillance and Apprehension of Business
Establishments for Non-Compliance with
the Provisions of Section 113, 114, 236, 237
and 238 of the NIRC, as amended. - No
surveillance activities shall be conducted
nor apprehension effected unless the same
has been authorized by a mission order
issued in accordance with the provisions of
this Order.

XXX XXX XXX

4. Action on Surveillance Results

If after the conclusion of the surveillance, there is

a sufficient ground for the closure of the
establishment as provided under Section 115 of the
NIRC, as amended, a recommendation shall be
made to effect such closure.

XXX XXX XXX

B. Suspension or Temporary Closure of Business

XXX XXX XXX

3. Confrontational Requirement/v'
Page 16 of22
DECISION
CTA CASE NO. 9845

1.1. Consistent with the requirements of due

process, the report of the handling
Revenue Officer shall be concurred in by
the Head of the investigating office. The
findings of the investigating office shall be
reviewed by a Review Board composed of the
following:

XXX XXX XXX

If a report is approved by a Review Board,

the concerned Regional Director or the
ACIR, Enforcement Service/LTS, as the
case may be, shall, in his capacity as Chair
of the Review Board, sign and issue to the
taxpayer concerned a Forty-Eight (48)
Hour Notice, requiring him to explain under
oath within forty eight (48) hours why he
should not be dealt with administratively, by
suspension of business or temporary closure
of his establishment, and/or criminally, for
violation of pertinent provisions of the Tax
Code.

XXX XXX XXX

3.3. If a Review Board deems it necessary to

pursue administrative or criminal action
against a non-compliant taxpayer, it shall
cause the preparation of a 5-Day VAT
Compliance Notice (VCN) [Annex 'D'],
which shall be issued in lieu of the 10-Day
VCN, to expedite the resolution of the case at
hand. The 5-Day VCN shall be signed by the
Chair of the Review Board concerned.

XXX XXX XXX

C. Execution and Enforcement

XXX XXX XXX

2. The signed Closure Order shall be returned by the

Office of the Commissioner, together with all
supporting documents, to the Review Board
concerned, for immediate service to the nony
Page 17 of 22
DECISION
CTA CASE NO. 9845

compliant taxpayer." (Emphases and underscoring

ours)

Based on the foregoing provtslOns, it is clear that a surveillance by

certain officers is necessary before the BIR can issue a 48-Hour Notice, 5-dcry
VAT Compliance Notice, and Closure Order, to a "non-compliant taxpcryer". The
surveillance, in turn, must be covered by, or authorized through, a Mission
Order duly issued under RMO No. 3-2009.

In this case, no Mission Order was shown to petitioner at the onset of

the BIR's overt surveillance. In fact, respondent admitted that no Mission
Order was issued against petitioner, as shown in Paragraph 21 of the Pre-Trial
Order dated January 23,2019. 80

Petitioner's witness Lunar Rosario testified as follows: 81

6. "Q: You mean to say that there were two tax audits
conducted by the BIR against your company for the same
year?

A: Yes, one under "Oplan Kandado" and the other, an

earlier one, under what I understand as a regular tax audit
of the company.

7. Q: Were these tax audits initiated by proper authorizations

from the BIR?

A: For the regular audit covering all taxes for the year 2016,
a Letter of Authority was issued by RDO No. 47-East
Makati, together with a checklist of documents we have to
submit to the examining revenue officers. But for the
"Oplan Kandado," which followed the regular audit, there
was no authorization letter at all.

XXX XXX XXX

9. Q: Under pertinent BIR regulations, a Mission Order is

supposed to be issued authorizing revenue officers to
conduct an investigation of a taxpayer under "Oplan
Kandado." Was such a Mission Order shown and
presented to the company before the conduct of audit
procedures under "Oplan Kandado"/

80 Page 3 of the Pre-Trial Order.

81 Second Judicial Affidavit of Lunar Rosario (In Lieu of Direct Testimony), pp. 3A.
Page 18 of 22
DECISION
CTA CASE NO. 9845

A: No. We did not receive any Mission Order under

"Oplan Kandado."

10. Q: Prior to any investigation under "Oplan Kandado,"

have you been informed by any revenue officer as to the
purpose of "Oplan Kandado" as it applies against your
company, the duties of the implementing revenue officers
and the procedures they will conduct?

A: We have not been informed of any of these, nor has any

revenue officer explained to us the purpose and procedures
under "Oplan Kandado" as it applies to our company.

11. Q: How was "Oplan Kandado" conducted then against

your company?

A: We simply received, on February 20, 2018, a 48-Hour

Notice from BIR Revenue Region No.8- Makati, signed by
Regional Director Glen A. Geraldina. The notice says that
we have failed to comply with the requirements of a VAT-
registered person by failing to issue sales receipts or
invoices and to reflect the correct taxable sales/ receipts for
the period January 1, 2016 to December 31, 2016."

This fact was not controverted by respondent's witness, Revenue Officer

Melissa Baes in her Judicial Affidavit. Moreover, no Mission Order was
presented as documentary evidence for the respondent.

Also, this Court finds that the 48-Hour Notice and 5-dt!J VAT Compliance
Notice have no factual bases. The 48-Hour Noticl2 states as follows:

"48 HOUR NOTICE

February 9, 2018

THE PRESIDENT
ISCALE SOLUTIONS, INC.
TIN NO: 008-106-923-00000
7F Salustiana D. Ty Tower
Paseo de Roxas, Legaspi Village, Makati City

Sir/Madam:

As shown in the report of our investigating office, you/you company have/has

failed to:
;V

sz Exhibit "P-4", Exhibit "R-8."

Page 19 of22
DECISION
CTA CASE NO. 9845

[ ] (A) Register as Value-Added Taxpayer in violation of Section 105 of the

National Internal Revenue Code of 1997, as amended;

[x] (B) Comply with the following requirements as a VAT -registered person:
[X] (1) Issue sales invoices or receipts pursuant to Section 113 and
237 of the National Internal Revenue Code of 1997, as
amended.
] (2) Pay your Value- Added Tax pursuant to Section 114 of the
National Internal revenue Code of 1997, as amended.
[X] (3) Reflect your correct taxable sales/receipts for the Taxable
Period January 1, 2016 to December 31, 2016.
[ ] (4) Understatement of taxable sales or receipts by thirty percent
(30%) or more of the correct taxable sales or receipts for the
taxable quarter.

In order to give you the opportunity to refute the above findings, you are hereby
given a period of 48 hours from receipt hereof to explain your side under oath
regarding the abovementioned findings. Failure on your part to do will constrain the
Office to recommend the imposition of administrative sanctions against you thru
suspension of business operations and temporary closure of your business
establishment pursuant to Section 115 of the National Internal Revenue Code as
implemented by revenue Memorandum Order No. 3-2009 dated January 15, 2009,
otherwise known as "OPLAN KANDADO", and/or filing of criminal action for
your aforesaid violations of the provisions of the Tax Code, WITHOUT
FURTHER NOTICE.
Very truly yours,

Sgd. GLEN V. GERALDINO

Regional Director"

The 5-dqy VAT Compliance Noticl3 reads as follows:

"Five (5)- DAY VAT COMPLIANCE NOTICE

!SCALE SOLUTIONS, INC.

7F Salustiana D. Ty Tower
Paseo de Roxas, Legaspi Village, Makati City
TIN NO: 008-106-923-00000

Sir/Madam:

The Revenue District Office No, 47-East Makati where your Office is located
reported that you have failed to:

[ ] A. Register as a Value- Added Taxpayer, in violation of Section 236 of the

National Internal Revenue Code of 1997 (as amended).
[X] B. Comply with the following requirements as a VAT-Registered person:
[X] 1. Issue sales invoices or receipts in your transactions for the taxable
year ending December 31, 2016 with non-resident foreign customers,
violation of Sections 113 and 237 of the National Internal Revenue Code
of 1997 (as amended);
_/¥'

83 Exhibit "P-5", Exhibit "R-12."

Page 20 ofZZ
DECISION
CTA CASE NO. 9845

[ ] 2. File your Value-added Tax Return, in violation of Section 114 of

the National Internal Revenue Code of 1997, as amended.
[ ]3. Reflect your correct taxable sales/receipts for the taxable year
ending December 31, 2016;
[X] 4. Pay the correct VAT deficiency including increments.

Notice is therefore hereby given, and demand made upon you, to rectify within
five (5) days from receipt hereof the above-stated violations committed, by

[ ] A. Complying with the registration requirements set forth in Sections 236

and 238 of the National Internal Revenue Code of 1997 (as amended), in case of
failure to register;
[X] B. Complying with the invoicing requirements set forth in Sections 113 and
237, in case of failure to issue receipts/invoices;
[ ] C. Filing of VAT Returns which have not been filed, and paying taxes due
thereon; and
[X] D. Declaring the correct taxable sales/receipts which were previously
understated due to failure to issue sales invoices /receipts due to under-declaration of
sales/ receipts and pay the correct VAT deficiency including increments.

Issued this 18'h day of March 2018 in Makati City.

Sgd. GLEN A. GERALDINO

Regional Director"

The said Notices did not state the details of the findings of the
investigating officers and the computation and legal bases of the alleged
deficiency VAT deficiency.

Notably, no Preliminary Assessment Notice and Final Assessment

Notice were issued in this case. In fact, during the pendency of the instant case,
the tax audit of petitioner pursuant to LOA No. SN: eLA201500049326 dated
June 28, 2017 was still on-going.

Thus, respondents violated petitioner's right to due process when they

failed to act in accordance with the prescribed procedure before issuing the
subject Notices.

It must be emphasized that the issuance of a valid formal assessment is a

substantive prerequisite for collection of taxes. 84 Considering that there are no
assessment notices issued yet, the collection of the alleged deficiency VAT as
stated in the 5-day VAT Compliance Notice must fail.

WHEREFORE, in light of the foregoing considerations, the instant

Petition for Review is GRANTED/

84 Commissioner of Internal Revenue vs. Fitness By Design, Inc., G.R. No. 215957, November 9, 2016.
Page 21 of22
DECISION
CTA CASE NO. 9845

Accordingly, respondent Geraldina's 48-Hour Notice dated February 9,

2018 and 5-dqy VAT Compliance Notice dated March 18, 2018 issued against
petitioner, are hereby DECLARED NULL and VOID.

SO ORDERED.

~. ~ _A'(___
MA. BELEN M. RINGPIS-LIBAN
As so ciate Justice

WE CONCUR:

E~P.UY
Associate Justice

~pinion)
MARlAR . ESTO-SAN PEDRO
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in

consultation before the case was assigned to the writer of the opinion of the
Court's Division.

ERL~P.UY
Associate Justice
Chairperson
Page 22 of22
DECISION
CTA CASE NO. 9845

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the

Division Chairperson's Attestation, is it hereby certified that the conclusions in
the above Decision were reached in consultation before the case was assigned
to the writer of the opinion of the Court.

Presiding Justice
 REPUBLIC OF THE PHILIPPINES
Court of Tax Appeals
QUEZON CITY

Third Division

iSCALE SOLUTIONS, INC., CTA CASE NO. 9845

Petitioner,

Members:
-versus-
UY, Chairperson,
RINGPIS-LIBAN, and
COMMISSIONER OF INTERNAL MODESTO-SAN PEDRO, JJ.
REVENUE, REGIONAL
DIRECTOR GLEN A. GERALDINO
& REVENUE DISTRICT OFFICER Promulgated:
MAHINARDO G. MAILIG, r.'UN O / 3 2021 ·
Respondents. IIJ_
X -----------------------------------------------------------1:1-~-f-·-~---:-~------------ X

CONCURRING OPINION

MODESTO-SAN PEDRO, J.:

I concur with the ponencia granting jurisdiction over the instant Petition
for Review and declaring null and void respondents' 48-Hour Notice dated 9
February 2018 and 5-day VAT Compliance Notice dated 18 March 2018
issued against petitioner.

In addition to the ponente 's findings in the above-captioned case, I

submit this Opinion to further clarifY my position as to this Court's
jurisdiction in Oplan Kandado Cases.

Here, respondents argue that this Court has no jurisdiction over the
above-captioned case for petitioner's alleged failure to exhaust all
administrative remedies available to it.

They explain that the basis of the Petition for Review which is the letter
issued by the Bureau of Internal Revenue ("BIR"), dated 18 April 2018
(hereinafter referred to as the "Response Letter"), does not constitute the final
Decision appealable to the Court of Tax Appeals ("CT A") under Section
7(a)(l) of Republic Act ("RA'? No. 1125, as amended by RA No. 9282. 1
1
An Act Expanding the Jurisdiction of the Court of Tax Appeals ("CTA"). Elevating its Rank to the Level/)
of a Collegiate Court with Special Jurisdiction and Enlarging its Membership. Amending for the Purpose.,..,.
 CONCIJRRING OPINION
CT A CASE NO. 9845
Page 2 of 6

They posit that the appealable decision in Oplan Kandado cases is the Closure
Order which is yet to be issued by the Commissioner of Internal Revenue
("CIR").

However, contrary to the position of respondents, the Oplan Kandado

program is not a single continuous process to which the end result is the
Closure Order.

Revenue Memorandum Order ("RMO'') No. 3-2009,2 or the rules

implementing the Oplan Kandado, is clear that the program is divided into
two (2) stages: the Surveillance and Confrontational Stage and the
Execution and Enforcement Stage.

The Surveillance and Confrontational Stage starts with the issuance

of the Mission Order granting authority to the revenue officer who will
conduct the surveillance operations. The stage will end with the taxpayer's
receipt of the BIR's Response Letter recommending the issuance of the
Closure Order. This is akin to the audit and assessment functions of the CIR.

Meanwhile, the Execution and Enforcement Stage is initiated through

the issuance of the Closure Order. The Order has the effect of physically
closing the business establishment of the taxpayer. This resembles what
occurs during the collection function of the CIR.

Considering the similarities noted, I am of the view that the rules

pertaining to the audit and assessment and collection powers of the CIR should
be made applicable, by analogy, to Oplan Kandado cases. This includes the
interpretation of what constitutes a final Decision appealable to the CT A

In Oceanic Wireless Network Inc., v. CIR ("Oceanic Case''), 3 the

Supreme Court pronounced that a Decision is considered appealable to the
CTA when its language is clear and unequivocal that the same constitutes the
BIR's final determination ofthe disputed assessment. The pertinent portion of
the Decision is quoted, to wit:

"We laid down the rule that the Commissioner of Internal Revenue
should always indicate to the taxpayer in clear and unequivocal language
what constitutes his final determination of the disputed assessment, thus:

... we deem it appropriate to state that the Commissioner of Internal

Revenue should always indicate to the taxpayer in clear and unequivocal fl,.
Certain Sections or Republic Act No. 1125, As Amended, Otherwise Known as the Law Creating the Court
of Tax Appeals, and for Other Purposes, 30 March 2004.
2
Amendment and Consolidation of the Guidelines in the Conduct of Surveillance and Stock-Taking
Activities, and the Implementation of the Administrative Sanction of Suspension and Temporary Closure
of Business, 15 January 2009.
3
G.R. No. 148380, 9 December 2005.
CONCtrRRING OPINION
CT A CASE NO. 9845
Page 3 of 6

language whenever his action on an assessment questioned by a taxpayer

constitutes his final determination on the disputed assessment, as
contemplated by Sections 7 and II of Republic Act No. 1125, as amended.
On the basis of his statement indubitably showing that the
Commissioner's communicated action is his final decision on the
contested assessment, the aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time. Without needless
difficulty, the taxpayer would be able to determine when his right to
appeal to the tax court accrues.

XXX XXX XXX

In this case, the letter of demand dated January 24, 1991,

unquestionably constitutes the final action taken by the Bureau of
Internal Revenue on petitioner's request for reconsideration when it
reiterated the tax deficiency assessments due from petitioner, and
requested its payment. Failure to do so would result in the "issuance of a
warrant of distraint and Ievv to enforce its collection without further
notice." In addition, the letter contained a notation indicating that
petitioner's request for reconsideration had been denied for lack of
supporting documents."4

Based on the above-quoted provision, the Supreme Court construed the

BIR's act of reiterating the tax deficiency assessment; demanding the payment
of the tax due; warning the taxpayer that its failure to pay the assessed tax will
lead to the enforcement of the assessment through the issuance of the Warrant
of Distraint and Levy; and stating that the taxpayer's protest had been denied
as clear and unequivocal proof that the Letter of Demand issued to the
taxpayer constitutes the BIR's final Decision appealable to the CTA.

It must be stated that Revenue Regulation ("RR'') No. 18-135 mandates

that the final Decision of the BIR appealable to the CTA should indicate the
"facts, the applicable law, rules and regulations, or jurisprudence on which
such decision is based". 6 Without the said information, the Decision is
considered void. The reason for this rule was explained by the High Court in
the case of Commissioner of Internal Revenue v. Liquigaz Philippines
7
Corp., to w1t:
0

"The use of the word "shall" in Section 228 of the NIRC and in RR No.
12-99 indicates that the requirement of informing the taxpayer of the legal
and factual bases of the assessment and the decision made against him is
mandatory. The requirement of providing the taxpayer with written notice
of the factual and legal bases applies both to the FLO/FAN and the FDDA.

Section 228 of the NIRC should not be read restrictively as to limit the
written notice only to the assessment itself. As implemented by RR No. 12-
99, the written notice requirement for both the FLD and the FAN is in ~

4
Emphasis Supplied.
5 Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process Requirement
in the Issuance of a Deficiency Tax Assessment, 28 November 2013.
6 Jd
7
G.R. Nos. 215534 & 215557, 18 April2016.
CONCURRING OPINION
CT A CASE NO. 9845
Page4of6

observance of due process - to afford the taxpayer adequate

opportunity to file a protest on the assessment and thereafter file an
appeal in case of an adverse decision.

To rule otherwise would tolerate abuse and prejudice. Taxpayers

will be unable to file an intelligent appeal before the CT A as they would
be unaware on how the CIR or his authorized representative appreciated
the defense raised in connection with the assessment. On the other hand,
it raises the possibility that the amounts reflected in the FDDA were
arbitrarily made if the factual and legal bases thereof are not shown." 8

Guided by the foregoing legal pronouncements, I am of the opinion that

the final Decision appealable to the CTA in Oplan Kandado cases is not the
Closure Order but the Response Letter. To better elucidate, the relevant
portion of the Response Letter is quoted, as follows:

"This is to acknowledge receipt of your letter dated April 5, 2018,

wherein the Company is refuting its violations of Sections 113 and 237 of the
National Internal Revenue Code (NIRC), as amended, for the taxable year
2016.

As stated in your letter, your objection is based on the nature of the

Company's sale of service to non-resident foreign corporation as being zero-
rated, which you state is not lost on the mere fact that no official receipt was
issued. It was also specified in your letter that the Company complies with all
the requisites for a sale to be considered as zero-rated.

However, you have failed to recognize the stipulations covered by

Section 113 of the said Code, which is one of the underlying basis ofOPLAN
KANDADO (RMO 3-2009), which provides:

XXX XXX XXX

In a decision of the Court of Tax Appeals (CTA) (Case No. 8134 dated
August 22, 2012), wherein the issue is the non-issuance of VAT official
receipts, it was pertinently stated by the said ruling that, "without proper VAT
official receipts issued to its clients, petitioner cannot claim such sales as zero-
rated VAT not subject to output tax.". This is precisely the basis for the denial
of the petitioner-taxpayer on its claim for VAT refund in the aforesaid
decision. Thus, if the taxpayer was denied of VAT refund due to its failure to
substantiate its zero-rated sales with VAT official receipts or invoices, it is
tantamount that the sales are considered vatable.

In relation thereto, the Supreme Court has consistently held that failure
to print the word "zero-rated" in its claim for VAT refund or credit of input
VAT on zero-rated sales (Northern Mindanao Power Corporation vs. CIR,
G.R. No. 185115 dated February 18, 2015) results to denial of said refund.

Please also justify the submitted copies of the issued official receipts to
non-resident customers, where it was noted, marked and established by the
concerned Revenue Officers, that said official receipts has not yet been issued O_
during the conduct of the audit. Submission of the copies of said official r
8
Emphasis Supplied.
CONCIJRRING OPINION
CTA CASE NO. 9845
Page 5 of6

receipts could only be revalidated upon submission of original booklets of

said official receipts.

Applying the foregoing provisions of the law and the corresponding

court rulings in your case, we are unfortunately precluded from accepting
and/or recognizing your dispute. Please be further informed that failure on
your part to pay the deficiency Value Added Tax will lead us to the
recommendation of the issuance of the CLOSURE ORDER, pursuant to
Section 115 of the National Internal Revenue Code, as implemented by
Revenue Memorandum Order No. 3-2009 dated January 15, 2009, otherwise
known as "OPLAN KANDAD

For your information and guidance."

Meanwhile, the prescribed temp late of a Closure Order under RMO No.
3-2009 is here quoted:

"CLOSURE ORDER

KNOW ALL MEN BY THESE PRESENTS:

By virtue of the power vested in me under Section 115 of the

National Internal Revenue code of I 997 (as amended), and upon failure,
refusal and I or neglect of the Taxpayer, , with
Taxpayer Identification No. , to comply with the
requirements specified in the Five (5) - Day VAT Compliance Notice No.
-:-----,~---~-· dated , Order is hereby
given this _ _ day of , 2009, for the closure of the
business establishment(s) of the above-named Taxpayer at
=----:---:--=-:c::---' based on the enclosed recommendatory report of the
Investigating Office, as reviewed by the Regional I National Review Board.

This Order shall remain in effect until it is lifted.

Issued this _ _ day of , 2009 in Quezon City,

Philippines."

A comparison of the two issuances underscores the point that the final
Decision appealable to the CT A, as contemplated in the foregoing discussions,
is not the Closure Order but the Response Letter.

Evidently, it is in the Response Letter and not in the Closure Order

where the BIR explained to petitioner the facts, the applicable law, rules and
regulations, and jurisprudence on which its decision was based. It is also
where the BIR reiterated its denial of petitioner's protest, echoed its demand
for payment of the deficiency taxes, and recommended the issuance of the
Closure Order. fv
 CONClJRRING OPINION
CT A CASE NO. 9845
Page 6 of 6

That the Closure Order cannot be considered the final Decision

appealable to the CTA may be gleaned from its contents. A close reading of
the same proves that its tenor does not resemble a Decision but an enforcement
issuance akin to a Warrant of Distraint and Levy.

In fact, the effect of the Closure Order, unlike Decisions, is immediate.

Hence, once issued, the BIR will already close the business establishment of
the taxpayer without any opportunity for the latter to rectify its errors or to test
its veracity in court. This is clear under Section V.C.5. of RMO No. 3-2009
which states:

"The execution of the Closure Order shall consist in the physical closing
of the doors or other means of ingress of the establishment, and the sealing
thereof, with the appropriate security devices (padlocks, etc.) and the BIR's
official seal."

As can be deduced from the aforementioned, the effect of the Closure

Order is not only instantaneous but also highly confiscatory in nature. Hence,
to consider respondents' argument on the matter will render the Court's
actions futile because the consequence that the taxpayer is trying to prevent,
which is the closure of its business, would have already taken place.

Moreover, denying the grant of jurisdiction will deprive the taxpayer a

timely relief. Hence, it will be forced to settle the BIR's assessment in order
to avoid the closure of its business establishment. This will ultimately tie
down the hands of the taxpayer, depriving it of the opportunity to challenge
the validity of the BIR's findings in Oplan Kandado cases.

Lastly, the issue on jurisdiction has already been addressed by the Court
En Bane in Commissioner of Internal Revenue v. Elric Auxiliary Services
Corp./Sacred Heart Gas Station 9 where it treated the Response Letter as the
BIR's final Decision appealable to the CTA. While I admit that CTA
Decisions are not binding precedents as compared to Supreme Court
Decisions, it cannot be denied that these Decisions are persuasive in disposing
of tax cases and, therefore, are worthy of consideration.

All told, it is my opinion that the appealable Decision in Oplan

Kandado cases is not the Closure Order but the Response Letter of the BIR.
Given the same, I agree with the ponencia.

MARIARO
'stice

9
C.T.A. EB Case No. 1174 (C.T.A. Case No. 8315), 3 March 2016.